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Fuel Ethanol Use in China Central Government included fuel ethanol use in the National Development Plan June 2001: E10 experimental use in 3 Provinces (Henan, Heilongjian and Jilin) March 2004: Central Government announces E10 implementation in 9 Provinces (3 previous + Anhui, Liaoning, Shandong, Hubei, Hebei and Jiangsu)  consumption of 1.3 million m 3 ethanol is expected by the end of 2005 Note: E10 is a blend of 10% ethanol and 90% gasoline

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Fuel Ethanol Use in China Present potential market of fuel ethanol is about 4.5 million m 3, considering E10 use nationwide Reduction of grain stocks and increase of grain prices may limit ethanol feedstock availability and slow down program progress Price of fuel ethanol in China is differentiated China seeks energy diversification & security Note: E10 is a blend of 10% ethanol and 90% gasoline

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What would be the role of Brazil ? Supply fuel ethanol to China, on a supplementary basis to domestic production, in order to: speed up and consolidate ethanol program reduce costs contribute to the sustainability of the ethanol program in the long run Can Brazil do it ? YES ! Brazil has a large experience with fuel ethanol and is the largest fuel ethanol producer worldwide!

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Brazil’s Center-South production capacity Sugar: 140 thousand tons/day Ethanol: 100 million liters/day Sugar cane mills operate approximately 180 days/year and most of them have an integrated sugar & ethanol production  flexibility of supply

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(million hectares) Total Area ……………… Area good for agriculture Area in use for cattle raising... (35) Occupied area (forests & plantations) (12) Available Area …… BRAZIL: AGRIBUSINESS EXPANSION BRAZIL IS ONE OF THE FEW COUNTRIES IN THE WORLD WITH GREAT CAPACITY TO EXPAND ITS AGRICULTURAL PRODUCTION Expansion area in the “ Brazilian Cerrado” region Source: EMBRAPA

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First Brazilian Flex Fuel Vehicle introduced in the market in March, 2003 Flex Fuel Vehicles can run on gasoline or on 100% ethanol or on any blend of ethanol & gasoline Until April 2004 over 80,000 units were marketed (operate mostly on 100% ethanol) Market projections indicate sales of about 250,000 Flex Fuel vehicles in 2004 FLEX FUEL VEHICLES

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AIR POLLUTION CO HC O3O3 PM NOx SOx R-CHO VEHICLES HAVE BECOME THE MOST IMPORTANT AIR POLLUTION SOURCE IN URBAN AREAS AND ETHANOL IS A FAST AND COST-EFFECTIVE WAY TO REDUCE POLLUTION CO 2 N2ON2O CH 4

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SUGAR CANE, ETHANOL AND THE GREENHOUSE EFFECT The substitution of bagasse for fuel oil in the production of ethanol combined with the substitution of ethanol for gasoline avoids the emission of 2.6 t CO 2 equiv./m 3 of fuel ethanol Ethanol CO 2 is absorbed by sugar cane CO 2 photosynthesis Source: Macedo et alii, 2004

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FINAL REMARKS  Brazil produces large volumes of fuel ethanol with high productivity  Exports of fuel ethanol from Brazil to China are feasible and price competitive  Brazil could become a preferential supplier of fuel ethanol to China  China and Brazil should strenghten the ethanol cooperation agreement